The annual $50,000 concessional contributions cap for those aged 50 and over was due to revert to the lower general concessional contributions cap of $25,000 from 1 July 2012. However, in response to the Henry Report, the Government proposed to allow individuals aged 50 and over with total superannuation balances below $500,000 to continue making up to $50,000 in concessional contributions beyond the scheduled end of the transitional period on 30 June 2012. The higher cap for eligible persons over 50 will not be indexed but instead set at $25,000 more than the general concessional contributions cap.

In early 2012, the Government established a Superannuation Roundtable to consider (among other things) compliance cost issues in relation to the proposed $50,000 concessional contributions cap for those aged 50 and over with less than $500,000 in superannuation. The Minister for Financial Services and Superannuation, Mr Bill Shorten, said the superannuation industry has raised concerns in relation to the cost and complexity involved in administering the $500,000 threshold, and the difficulty some individuals may face in determining whether they are eligible for the higher cap.

Mr Shorten said that deferring the start date of the higher cap from 1 July 2012 to 1 July 2014 will allow implementation to occur in conjunction with changes to superannuation fund reporting and systems that will be occurring under the SuperStream reforms (see also para [683] of this Bulletin). In addition, Mr Shorten said that individuals will be able to more easily determine whether they are eligible for the higher cap from 1 July 2014, as the Tax Office is developing an online reporting facility that will provide access to comprehensive account balance information from early 2014.

Deferring the start date of the higher concessional contributions cap by 2 years is expected to save $1.46bn over the forward estimates.

Date of effect

This measure will apply from 1 July 2012.

Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates. The Minister for Financial Services and Superannuation, Mr Bill Shorten, said a small number of people on high incomes are getting a better tax deal out of super than millions on average incomes. The proposed reduction in the higher tax concession that is currently available for very high income earners on their concessional contributions will align it more closely with the concession received by average income earners, Mr Shorten said. However, there will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners.

Income test

The definition of “income” for the purpose of this measure will include taxable income, concessional superannuation contributions (eg superannuation guarantee contributions and salary sacrificed contributions), adjusted fringe benefits, total net investment loss, target foreign income and tax-free government pensions and benefits, less child support.

If an individual’s income (excluding their concessional contributions) is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold. For example, someone with income excluding their concessional contributions of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), would have the reduced tax concession only apply to $5,000 of their contributions.

Concessional contributions

Importantly, the reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap of $25,000 and are therefore subject to excess contributions tax (ECT). Excess concessional contributions are effectively taxed at the individual’s top marginal tax rate and therefore do not receive a tax concession.

“Concessional contributions” for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. For members of defined benefit funds (both funded and unfunded schemes), it will include all of their notional employer contributions.

No change to taxation of super fund earning

Mr Shorten said the 15% flat tax on earnings within superannuation (and tax exemption for assets supporting pension payments) will not be affected in any way by this reform. Rather, the proposed reform will only reduce the tax concession which very high income earners receive on their contributions into superannuation, Mr Shorten said.

The Minister said the proposed measure is expected to save $946m over the forward estimates and will affect 128,000 individuals in 2012-13.

Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details.

Date of effect

The measure will apply from 1 July 2012.

This will be achieved by denying a tax deduction for a bad debt written off where the debtor is a related party not in the same tax consolidated group. The corresponding gain to the debtor will also not be taxed.

Date of effect

This measure will apply from 7:30pm (AEST) on 8 May 2012.

Source: Budget Paper No 2 [p 18]

• limit access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
• provide the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.

The Government believes these further reforms “will stop employers from being able to give the tax concession to employees who aren’t maintaining a second home, or are maintaining 2 homes indefinitely”.

Exceptions

The proposed changes are designed not to affect:

• the tax concession for “fly in fly out” arrangements, as these employees will not be subject to the 12 month time limit; or
• the tax treatment of travel and meal allowances, which are provided to employees who have to travel away from their usual place of work for short periods (generally up to 21 days).

Date of effect

The changes will apply from 1 July 2012 for arrangements entered into after 7:30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to that time.

The Government said it would consult with tax experts and employers on the technical detail of the legislation.

Source: Budget Paper No 2 [p 24]; Treasurer’s press release, 8 May 2012

As part of the loss carry-back, from 1 July 2012, companies will be able to carry back up to $1m worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1m worth of losses against tax paid up to 2 years earlier.

The Treasurer said loss carry-back “received strong and widespread support” at the Tax Forum last year and was developed further in close consultation with business representatives and tax experts through the Business Tax Working Group, which recommended the measure in its Final Report on the Tax Treatment of Losses .

The Treasurer said the Government would release a Discussion Paper about the introduction of loss carry-back shortly.

Source:Treasurer’s press release 031, 6 May 2012

The Treasurer added that the savings from not proceeding with the company tax cut will be used to fund other measures, including the loss carry-back arrangement for companies.

 Source: Budget Paper No 2 [p 22]

The additional amount of threshold for each dependent child or student will also be increased to $3,007 (up from $2,919).

The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2011 to $30,451 (up from $30,439). This increase will ensure that pensioners below Age Pension age do not pay the Medicare levy while they do not have an income tax liability.

Date of effect

The measure will apply from 1 July 2011.

Source: Budget Paper No 2 [p 37]; Treasurer’s press release, 8 May 2012

The offsets to be consolidated are the:

• invalid spouse and carer spouse offsets;
• housekeeper (with or without child) offset;
• child-housekeeper (with or without child) offset;
• invalid relative offset; and
• parent/parent-in-law offset.

The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure.

Taxpayers who are currently eligible to claim more than one offset amount in respect of multiple dependants who are genuinely unable to work will still be able to do so.

This announcement will implement one of the recommendations of the 2010 Henry Tax System Review.

Source: Budget Paper No 2 [p 35]; Treasurer’s press release, 8 May 2012

• $410 for each child in primary school;
• $820 for each child in high school.

The new automatic payment will replace the Education Tax Refund (or offset) from 1 January 2013. Under the existing system, the PM said 1 million families were not claiming what they were entitled to – either claiming less than the full amount, or claiming nothing at all. That’s 80% of eligible families, she said.

According to the Prime Minister, because the payment is automatic and upfront, it means:

• Parents don’t need to keep receipts – it’s a guaranteed payment.
• Parents will receive the full amount every time, so families won’t miss out if they lose receipts.
• Parents don’t have to pay out of their own pocket, then wait months to get paid back through the tax system – the payment will be paid upfront, twice a year (in January and July each year), before the start of Term 1 and Term 3.
• No paperwork is required.

Thomson Reuters confirmed with Treasury that the Schoolkids Bonus will not be a taxable payment.

In the same way as the Education Tax Refund, the Schoolkids Bonus will be available to families receiving Family Tax Benefit Part A plus young people in school receiving Youth Allowance and some other income support and veterans’ payments.

As part of the transition to the new Schoolkids Bonus, the Education Tax Refund for 2011-12 will be paid out in full to all eligible families as a lump sum payment in June 2012. The PM said this means families will receive their full Education Tax Refund entitlement ahead of tax time – so parents won’t have to worry about keeping receipts or making claims when they do their tax this year.

Legislation to enable these changes is proposed to be introduced into Parliament in the Parliamentary sitting week 8-10 May 2012.

Source: Prime Minister’s press release, 6 May 2012; Budget Paper No 2 [p 146]; Treasurer’s press release, 8 May 2012

The tax rates for non-residents that will apply for the 2012-13 and 2013-14 years are:

The tax rates for non-residents that will apply for the 2014-15 income year (ie from 1 July 2015) are: